A large percentage of America's working population is attending undergraduate and/or graduate school before embarking on a career. In many cases, the only way an individual is able to pursue such an education is by borrowing funds while he or she is in school. If the student does not borrow the funds, then the student's parents may do so. The financial burden on the student and his or her parents is always substantial and frequently overwhelming. This is particularly true for families who are educating more than one person at the same time. The result is that a significant segment of the population enters the work force burdened with substantial loans that were incurred during his or her educational process.
In order to make funds available to students, most student loans are guaranteed or otherwise supported by various government sponsored programs. Because such loans are usually unsecured, this is the only way that financial institutions will make funds available for such loans, since they are generally unwilling to otherwise extend unsecured credit to a student with no assets and no work or credit history. The fact that nearly all student loans are insured or guaranteed under one government program or another also means the interest rates charged on such loans will be more favorable to the borrower than would a comparable unsecured loan made by a financial institution. Loans made under a government sponsored program will often provide other benefits to the borrower, such as tolling amortization of the loan while the student is attending school and subsidizing the loan interest.
Notwithstanding the benefits offered by government sponsored student loan programs, the resultant financial burden on the student or former student is substantial. Although the student is not required to amortize the loan while he or she is still a student, the loan may continue to accrue interest at compound rates. If the student continues his or her education beyond the undergraduate level, it may be several years before the obligation to amortize the loan commences. It is not uncommon, for example, for a student to secure a loan during the first year of his or her undergraduate education and have the obligation more than double by the time the amortization period commences.
Because the student or the student's parents normally only takes out loans as needed, they will shop for what they perceive to be the best terms available at that time. In addition, some educational institutions have a preferred or exclusive list of lenders available to that institution. A student that attends multiple educational institutions will be required to use specific lenders that may differ from institution to institution. For this reason, a student, or his parents, will frequently find they have multiple loan obligations outstanding when the time to amortize such loans commences. This also means that it is more probable than not that more than one lender will be involved and that loans will be insured or guaranteed under more than one government-sponsored program. The situation is further complicated by the fact that some of the loans may be the sole obligation of the student, while others will be guaranteed by a third party, typically the student's parents.
As a result of the substantial debt obligation incurred by most former students, when the time to amortize the obligations commences, the monthly payments will frequently be substantially more than can be supported by the former student's compensation. One way such a former student can handle the debt load is to consolidate his or her student loans into a single loan and extend the amortization period. The consolidation combined with an amortization extension usually permits the monthly payments to be reduced to a manageable level. Until recently, it has been difficult for a former student to combine or consolidate all of his or her student loans into a single loan package. This was because no provision existed for maintaining government insurance or guarantees in place, if an unrelated lender made a consolidation loan. That is, if a former student had a loan from one financial institution and borrowed from another to pay the original loan off, the new loan was not qualified to be covered by a government sponsored program. Because most students had loans from multiple lenders, the lenders available to consolidate loans were limited.
Although the law has been changed to allow unrelated financial institutions to consolidate student loans without losing the insurance or guarantee benefits provided by government sponsored student loan programs, a potential loan applicant must still expend considerable effort in gathering information and seeking out a lender willing to consolidate the student loans. Even if a lender is found who is willing to consolidate student loans, in many cases the effort required to secure the consolidated loan discourages a loan applicant. In most cases, the loan applicant must gather the student loan information, complete the loan application for the potential lender, submit the application, and wait to find out if the consolidation loan has been approved or rejected by the lending institution. Because it is not unusual for errors to be made on the application, many applications are rejected for that reason alone. Such a rejection requires the loan applicant to start the process over again. It is also not unusual for a loan applicant to be not qualified to receive a consolidated student loan for any one of a number of possible reasons. In some cases, the reason for disqualification is curable, which requires the loan process to be started all over again. In short, the entire loan procedure to secure a consolidated student loan is time consuming and, in many cases, repetitive.
The process is further complicated by financial institution indifference. Because student loans made pursuant to a government sponsored program will typically produce a very low yield to the lending financial institution, it is more advantageous for a financial institution to seek out and make loans to parties where a higher yield can be achieved, such as loans to commercial borrowers. Little financial incentive exists for most financial institutions to seek out and assist former students in consolidating their student loans.
Accordingly, what is needed in the art is a student loan consolidation qualification system and method of operating the same. The system should be easy to use and provide prompt feedback to a potential loan applicant.